Production across countries:

• Until the middle of the 20th century, production was organised within countries.
• Even in our country most of the production was in the hands of the government.
• But with the entry of MNCs (Multi National Corporations) the whole world market has changed.

Multi National Corporations (MNC) - A company that owns or controls production in more than one country is called Multi National Corporations.

E.g. Pepsi, Samsung, Onida, Glaxo, Ponds, LG, etc

• MNCs set up offices and factories for production in regions where they can get cheap labour and other resources.
• This is done so that the cost of production is low and the MNCs can earn greater profits.
• MNC is not only selling its finished products globally, but more important, the goods and services are produced globally.
• As a result, production is organised in increasingly complex ways.
• The production process is divided into small parts and spread out across the globe

Advantages of Multi National Corporations (MNC):

Availability of capital and foreign investment:

• MNC help to solve the problem of capital and foreign investment by under developed and developing countries.

Availability of foreign exchange:

• MNCs can be helpful in solving the problem of foreign exchange of the underdeveloped and developing countries.
• In 1905 India faced a huge shortage of foreign exchange but with the entry of MNCs it has surplus foreign exchange reserves.

Promotion of small scale industries:

• Most of the MNCs take help from small scale and local industries in manufacturing Garment, Footwear, Sports items etc are carried out by a large number of small producers around the world.
• The products are supplied to the MNCs which then sell these under their own brand names to the customers

Interlinking production across countries:

• MNCs set up factories, and offices for production in these developing and under developing countries and make huge investment.
• The money that is spent to buy asset is called investment.
•  The investment in domestic companies and assets of another country by a foreign investor is called foreign investment.
• At times, MNCs set up production jointly with some of the local companies of these countries.
• The benefit to the local company of such joint production is two-fold.
• First, MNCs can provide money for additional investments, like buying new machines for faster production.
• Second, MNCs might bring with them the latest technology for production.
• But the most common route for MNC Investments is to buy up local companies and then to expand production.
• MNCs with huge wealth can quite easily do so.
• There's another way in which MNCs control production.
• Large MNCs in developed countries place orders for production with small producers.
• Thus, we see that there are a variety of ways in which the MNCs are spreading their production and interacting with local producers in various countries across the globe.
• By setting up partnerships with local companies, by using the local companies for supplies, by closely competing with the local companies or buying them up, MNCs are exerting a strong influence on production at these distant locations.
• As a result, production in these widely dispersed locations is getting interlinked.

Foreign trade and integration of markets:

• To put it simply, foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e. markets of their own countries.
• Producers can sell their produce not only in markets located within the country but can also compete in markets located in other countries of the world.
• Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
• In general, with the opening of trade, goods travel from one market to another.
• Choice of goods in the markets rises.
• Prices of similar goods in the two markets tend to become equal.
• Producers in the two countries now closely compete against each other even though they are separated by thousands of miles! Foreign trade thus results in connecting the markets or integration of markets in different countries.

Ford Motors, an American company, is one of the world's largest automobile manufacturers with production spread over 26 countries of the world, Ford Motors came to India in 1995 and spent Rs. 1700 crore to set up a large plant near Chennai.

Chinese manufacturers learn of an opportunity to export toys to India, where toys are sold at a high price. They start exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and the Chinese toys.

Chinese toys in market:

• Chinese manufacturers learn of an opportunity to export toys to India, where toys are sold at a high price.
• They start exporting plastic toys to India.
• Buyers in India now have the option of choosing between Indian and the Chinese toys.
• Because of the cheaper prices and new designs, Chinese toys become more popular in the Indian markets.
• Within a year, 70 to 80 per cent of the toy shops have replaced Indian toys with Chinese toys.
• Toys are now cheaper in the Indian markets than earlier.

What is happening here?

• As a result of trade, Chinese toys come into the Indian markets.
• In the competition between Indian and Chinese toys, Chinese toys prove better.
• Indian buyers have a greater choice of toys and at lower prices.
• For the Chinese toy makers, this provides an opportunity to expand business.
• The opposite is true for Indian toy makers.
• They face losses, as their toys are selling much less.

Globalisation - The process of rapid integration or inter-connection between countries is called Globalisation.

• It allows free flow of trade, capital and human resources across borders.

• In the past two to three decades, more and more MNCs have been looking for locations around the world which would be cheap for their production.
• Foreign investment by MNCs in these countries has been rising.
• At the same time, foreign trade between countries has been rising rapidly.
• A large part of the foreign trade is also controlled by MNCs.
• For instance, the car manufacturing plant of Ford Motors in India not only produces cars for the Indian markets, it also exports cars to other developing countries and exports car components for its many factories around the world.
• Likewise, activities of most MNCs involve substantial trade in goods and also services.
• The result of greater foreign investment and greater foreign trade has been greater integration of production and markets across countries.
• Globalisation is this process of rapid integration or interconnection between countries.
• MNCs are playing a major role in the globalisation process.
• More and more goods and services, investments and technology are moving between countries.
• Most regions of the world are in closer contact with each other than a few decades back.
• Besides the movements of goods, services, investments and technology, there is one more way in which the countries can be connected.
• This is through the movement of people between countries.
• People usually move from one country to another in search of better income, better jobs or better education.
• In the past few decades, however, there has not been much increase in the movement of people between countries due to various restrictions.

Examples of Globalisation: 

• The way in which the world economy is integrated in the modern world is globalization.
• Take example of Microsoft. Microsoft is having its headquarters in USA.
• This company is getting part of its software developed in India and several other countries.
• And Microsoft’s software is being used across the world.
• Another example can be Ford motors based in USA.
• Ford is having manufacturing plants in Chennai and cars manufactured in Chennai go for sale in other countries.
• Moreover, company may be getting gear boxes produced in some other country, seat belts from a different country, lights, rear view mirrors in some other nation by some other company.
• Almost all the components get supplied by various vendors to the Ford motor, which assembles them to make the car.
• All these activities help in generating employment opportunities across the world.
• This in turn affects the world economy.
• You can think of various activities in the step of final production of a product or a service which take place around the world at different locations.
• This results in interdependence of national economies around the world.

Development of Globalisation:

• Since early history global trade has been connecting mankind in myriad ways.
• Silk route of early history helped in connecting Asia from the rest of the world.
• This trade route not only facilitated movement of goods but also movement of people and ideas.
• If zero traveled from India to rest of the world then western clothes came to India.
• Nowadays the ways we relish eating pizza or noodles, people abroad are big fans of the Indian curry and chicken tikka.
• Early phase of globalization involved export of raw material from Asia and import of finished products from Europe.
• But from mid twentieth century things began to change.
• During mid to late twentieth century certain company’s became multinationals as they spread their economic activities to various parts of the world.

Causes of Globalisation:

Need of Cost Cutting: 

• Suppose a company is having two options to get a particular work done.
• The first option is to get it done in the home country but cost involved will be higher.
• Next option is to get it done in a different country at a lesser cost.
• Obviously any company will prefer the second option.
• Labour cost and cost of certain raw materials are cheaper in India, Malaysia, China and Taiwan.
• This results in reduced cost of production, which will result in better profit for the company.
• So you get a computer with certain parts manufactured in Taiwan or Malaysia, processor manufactured in India and software supplied from USA.
• The final product may get assembled in the market where it will be ultimately used.

Need to find newer markets: 

• If home market’s consumer base has purchased a product and needs no more of it or little bit of it, then the company has to plan to increase the business.
• This can be done by finding newer markets with new consumer base.
• Especially in today’s scenario when India and China constitute about one fourth of the world population, any company which wants to get more business can’t ignore these two markets.
• Try comparing it with your city or village.
• If vegetables produced in a village can only be sold in that village then it may not find many customers, resulting in low price and may be wastage of vegetables.
• To get a better price from large customer base the village vegetable grower needs to move to cities.

Stimulus for Globalisation:

• Earlier countries imposed heavy import duties to restrict goods from outside and to promote local industries.
• These were part of deliberate trade barriers.
• But WTO (World Trade Organisation) convinced all member nations to reduce trade barriers.
• WTO believes in unrestricted economic opportunity across the world. In India after 1991, liberalization policies were being followed resulting in MNCs setting up shops in India.
• The result is for everybody to see.
• Earlier car meant an Ambassador or a Fiat and two-wheeler meant a Bajaj Scooter or Rajdoot Motorcycle.
• Now people have various options for car and two wheelers.

Factors responsible for Globalisation:

Rapid improvement in technology:

• Rapid improvement in technology has been one of the major factors that have stimulated the globalisation process.
• Due to major improvement in transportation technology, goods can be transported throughout the world in a short period of time and at a lower cost.

Containers for transport of goods:

• Several improvements in transportation technology have made much faster delivery of goods across long distances possible at lower costs.
• Goods are placed in containers that can be loaded intact onto ships, railways, planes and trucks.
• Containers have led to huge reduction import handling costs and increased the speed with which exports can reach markets.
• Similarly, the cost of air transport has fallen.
• This has enabled much greater volumes of goods being transported by airlines.

Information and communication technology:

• Development in telecommunications, computers, internet has given a big boost to the process of globalisation.
• It is very easy to access information instantly and to communicate from remote areas.
• This has been facilitated by satellite communication devices

Liberalisation of foreign trade and foreign investment policy:

• Let us return to the example of imports of Chinese toys in India.
• Suppose the Indian government puts a tax on import of toys.

What would happen? Those who wish to import these toys would have to pay tax on this.

• Because of the tax, buyers will have to pay a higher price on imported toys.
• Chinese toys will no longer be as cheap in the Indian markets and imports from China will automatically reduce.
• Indian toy-makers will prosper.

Trade Barrier:

• It refers to the various restrictions which are used by the government to increase or decrease regulates foreign trade. e.g tax on imports.
• The Indian government, after independence, had put many such barriers to foreign trade and foreign investment.
• This was considered necessary due to the following reasons.
• This was considered necessary to protect the producers within the country from foreign competition.
• Industries were just coming up in the 1950s and 1960s, and competition from imports at that stage would not have allowed these industries to come up.
• Thus, India allowed imports of only essential items such as machinery, fertilisers, petroleum etc.

Liberalisation- Removing barriers or restrictions set up by the government is known as liberalisation.

• Starting around 1991, some farreaching changes in policy were made in India.
• The government decided that the time had come for Indian producers to compete with producers around the globe.
• It felt that competition would improve the performance of producers within the country since they would have to improve their quality.

World Trade Organisation - An intergovernmental organization that regulates and facilitates international trade between nations is called World Trade Organisation.

• We have seen that the liberalisation of foreign trade and investment in India was supported by some very powerful international organisations.
• These organisations say that all barriers to foreign trade and investment are harmful.
• There should be no barriers. Trade between countries should be free'.
• All countries in the world should liberalise their policies.
• World Trade Organisation (WTO) is one such organisation whose aim is to liberalise international trade.
• Started at the initiative of the developed countries, WTO establishes rules regarding international trade, and sees that these rules are obeyed.
• Nearly 165 countries of the world are currently members of the WTO (2016).
• Though WTO is supposed to allow free trade for all, in practise, it is seen that the developed countries have unfairly retained trade barriers.
• On the other hand, WTO rules have forced the developing countries to remove trade barriers.
• An example of this is the current debate on trade in agricultural products.

Positive impact of globalisation in India:

Variety of products:

• Many MNCs have invested their capital in India.
• So the Indian consumers are getting variety and quality products at cheaper rates.

Development in infrastructure:

• Due to this policy the condition of infrastructure has improved considerably.
• The government is building Golden Quadrilateral which will connect all major cities.
• Much progress can be seen in the communication sector.

Boost to Indian Companies:

• Due to this policy the private sector has gained a big push.
• Now the private sector is free to import raw material and technology from other countries.
• Many restrictions on the import and exports have been lifted.
• Globalisation has enabled some large Indian companies to emerge as multinational companies themselves.
• Tata motors, Ranbaxy, Asian paints are some companies which are spreading their operation worldwide.

Boost to service sector:

• Globalisation has also created new opportunities for companies providing services, particularly those involving information and communication technology.

Foreign currency and Foreign Direct Investment:

• The foreign currency reserves have multiplied to a great extent due to new economic policy.
• Foreign Direct Investment which was just Rs. 174 crore in 1991 has risen to Rs. 9, 338 in 2000.

Global form of modern business:

• Due to globalisation the business has now become global.
• Now India exports and imports of goods.
• Our industries have also entered in the all kinds foreign markets.

Increase in competition:

• The process of globalisation and liberalisation has increased the competition among the different industries.
• The competition has increased the efficiency and productivity levels of the private as well as the public sector.

Negative impacts of Globalisation in India:

Exploitation of workers:

• Large MNCs with worldwide network look for the cheapest goods in order to maximize their profits.
• Workers are forced to work for long hours and work night shifts on a regular basis during the peak season.
• Workers are denied their fair share of benefits brought by globalisation.

Less importance to agriculture:

• New economic policy of globalisation has ignored the significance of agriculture sector in the Indian economy.

Failure in Poverty Alleviation:

• It has failed to solve the problem of poverty which is a major economic problem of India.
• The process of globalisation has widened the gap between the rich and the poor.

Problem for small scale Industries:

• The MNCs have entered in the production of such items which were earlier reserved for small scale industries.
• The small scale industries have failed to compete with the MNCS.

Competition and uncertain employment:

• Globalisation and the pressure of competition have substantially changed the lives of workers.
• Faced with growing competition, most employers these days prefer to employ workers flexibly. This means that workers jobs are no longer secure.

Steps to attract foreign investment:

• In recent years, the central and state governments in India are taking special steps to attract foreign companies to invest in India.
• Industrial zones, called Special Economic Zones (SEZs), are being set up. SEZs are to have world class facilities: electricity, water, roads, transport, storage, recreational and educational facilities.
• Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years.
• Government has also allowed flexibility in the labour laws to attract foreign investment.
• You have seen in Chapter 2 that the companies in the organised sector have to obey certain rules that aim to protect the workers’ rights.
• In the recent years, the government has allowed companies to ignore many of these.
• Instead of hiring workers on a regular basis, companies hire workers ‘flexibly’ for short periods when there is intense pressure of work.
• This is done to reduce the cost of labour for the company.
• However, still not satisfied, foreign companies are demanding more flexibility in labour laws.

Competition or uncertain employment:

• Globalisation and the pressure of competition have substantially changed the lives of workers.
• Faced with growing competition, most employers these days prefer to employ workers ‘flexibly’.
• This means that workers’ jobs are no longer secure.
• Large MNCs in the garment industry in Europe and America order their products from Indian exporters.
• These large MNCs with worldwide network look for the cheapest goods in order to maximize their profits.
• To get these large orders, Indian garment exporters try hard to cut their own costs.
• As cost of raw materials cannot be reduced, exporters try to cut labour costs.
• Where earlier a factory used to employ workers on a permanent basis, now they employ workers only on a temporary basis so that they do not have to pay workers for the whole year.
• Workers also have to put in very long working hours and work night shifts on a regular basis during the peak season.
• Wages are low and workers are forced to work overtime to make both ends meet.
• While this competition among the garment exporters has allowed the MNCs to make large profits, workers are denied their fair share of benefits brought about by globalisation.

A garment worker:

• 35 year old Sushila has spent many years as a worker in garment export industry of Delhi.
• She was employed as a ‘permanent worker’ entitled to health insurance, provident fund, overtime at a double rate, when Sushila’s factory closed in the late 1990s.
• After searching for a job for six months, she finally got a job 30 km. away from where she lives.
• Even after working in this factory for several years, she is a temporary worker and earns less than half of what she was earning earlier.
• Sushila leaves her house every morning, seven days a week at 7:30 a.m. and returns at 10 p.m.
• A day off from work means no wage.
• She has none of the benefits she used to get earlier.
• Factories closer to her home have widely fluctuating orders and therefore pay even less.
• The conditions of work and the hardships of the workers described above have become common to many industrial units and services in India.
• Most workers, today, are employed in the unorganised sector.
• Moreover, increasingly conditions of work in the organised sector have come to resemble the unorganised sector.
• Workers in the organised sector such as Sushila no longer get the protection and benefits that they enjoyed earlier.

The struggle for a fair Globalisation:

• The above evidence indicates that not everyone has been benefitted from globalisation.
• People with education, skill and wealth have made the best use of the new opportunities on the other hand, there are many who have not shared the benefits.
• So now there is need for fair globalisation i.e. where all get equal opportunities and development takes place but not at the cost of poor people and environment.

Role of Government:

• Government should prepare such policies that must protect the interest not only of the rich and the powerful, but of all the people in the country.
• Government can ensure that labour laws are properly implemented and the workers get their rights. Government can reserve some items exclusively for small scale and local producers.
• If necessary, the government can use trade and investment barriers like quota system, imports duties, etc.
• It can negotiate at the WTO for fairar rules.

Results of Globalisation:

Better Employment Opportunities: 

• At present India is the leader in BPO sector.
• BPOs provide back office support to many MNCs.
• A customer calling in USA to sort out his problem may be talking to a call centre employee in Gurgaon.
• Because of growing economic activities many new centres of economic activity have developed in India.
• These are Gurgaon, Chandigarh, Bangalore, Hyderabad and Meerut.
• Earlier Mumbai, Chennai, Kolkata and Delhi used to be major economic centres.

Change in Lifestyle: 

• Eating habits have changed dramatically.
• Now you may be eating Kellog’s corn flakes for breakfast and Aloo Tikki Burger for lunch.
• You may be wearing a Levi’s jeans and if you are having a BPO employee as neighbour then you may have listened his accented English.

Uneven Benefits of Development: 

• For every MNC executive there is a larger number of rickshaw puller and daily wage earner.
• There are still millions who are unable to get two square meals in a day.
• We still hear news of farmers committing suicide in Maharashtra and Karnataka.

Unfair Means Adopted by Developed Countries: 

• Developed countries still give huge subsidies to their farmers and impose heavy trade barriers.
• In the bargain developed nations don’t get the desired benefit out of WTO negotiations.

Conclusion:

• Globalisation is a reality which is here to stay.
• Globalisation has given more benefits than problems.
• The economists and policy makers of the world need to fine tune their strategy so that benefits of globalization can reach the masses.
• The ultimate success of globalization can only be realized when it helps achieve all the parameters of development.
• These parameters or goals of development are not only about monetary income, but also about better healthcare, education, security and overall quality of life for all.